Economic Blockade

During World War II, the United States and its Allies waged a combination of military and economic warfare against Germany and its Axis partners. The military battles are well-known and their outcomes clearly defined. But the equally complex economic battles to isolate Nazi Germany and choke off its capacity to wage war, though often conducted bloodlessly in offices and conference rooms, have received far less attention despite their critical importance. How far and how vigorously to press this economic war upon the key neutral nations that supplied Germany with vital war-related materials and services were continuing issues for U.S. policy-makers and a matter of difficult negotiation between the United States and its Allies.

During the early years of World War II, even before it entered the War, the United States worked with its Allies to establish an economic blockade against Germany. The campaign to curtail commerce between Germany and the neutral nations was designed to thwart the movement of German assets outside Germany to fuel its engines of war. Through 1941, the U.S. Treasury Department took the lead in severing financial and commercial relations with Germany and preventing German use of neutral nations or firms to circumvent American freeze orders. The U.S. put in place procedures for the licensing of commercial and financial transactions of the neutrals and applied "blacklists" to persons and businesses dealing with the enemy.

"Monetary gold" looted by Germany from the central banks of occupied nations of Europe had an important role in financing and prolonging the German war effort. The United States joined its Allies in efforts to deter the neutrals from trading and trafficking in looted gold and hard currency. According to estimates made by American officials at the end of the War, Germany had about $200 million in monetary gold (now roughly $1.9 billion) in 1940, following its absorption of Austrian and Czechoslovakian gold. During the War, Germany seized from eleven occupied European nations monetary gold worth an estimated $579 million ($5.6 billion today). From $398 million to $414 million went to Switzerland, either to the Swiss National Bank's own account or the account of other countries at the Swiss National Bank. The bulk of this gold was looted from the central banks of occupied Western Europe. At least some of the gold traded abroad contained a portion confiscated from individuals, both concentration camp victims and other civilians.

While the Allies did not know the exact size of gold flows during the War, they were well aware of its broad scope and they were determined to diminish it. The Allies issued a declaration in January 1943 warning neutral countries that forced transfers of property in occupied Europe would not be recognized, and that such transfers that took place through looting or any other form of transaction would be declared invalid. In February 1944 the United States, Britain, and the Soviet Union extended this general policy to the looted gold of the defeated nations, declaring that they would not buy gold from any nation that had not broken relations with the Axis or that had acquired gold from a defeated or Axis country.

Germany's war effort depended significantly upon its imports of raw materials and goods from the neutral nations. Switzerland was Nazi Germany's banker and financial facilitator, taking and transferring German gold--most of it looted--and providing Germany with Swiss francs to purchase needed products. Switzerland also supplied Germany with key war materials such as arms, ammunition, aluminum, machinery and locomotives. Moreover, Germany was able to mitigate slightly the effect of Allied bombing by moving some arms production to safety beyond the Swiss frontier. Sweden was a critical trading partner of Nazi Germany. Its wartime exports of ball bearings to Germany were vitally important, and for a time Sweden supplied Germany with 40 percent of its iron ore until other European sources reduced that dependency. Spain and particularly Portugal provided Germany with invaluable supplies of wolfram (tungsten) required in the steel-hardening process. Spain also supplied iron ore, mercury, and zinc. Turkey exported very scarce chrome ore to Germany, where the valuable mineral was in short supply.

Allied economic warfare efforts were aimed at closing this commerce down both by choking off its financing and by direct military intervention. But it was not until the fortunes of war had shifted irreversibly against the Axis in 1944 that these efforts finally began to succeed. The persistent reluctance of Switzerland and other neutral states to curtail or halt their profitable commerce in war materials with Germany, even to the very end of the War, angered U.S. policy-makers.

Through much of the War, the U.S. and its Allies could not enforce a fully effective blockade against Germany. The continuing trade between Germany and the neutral nations could only be curtailed through such economic leverage as the Allies could apply in the negotiation of war trade agreements with the neutrals. Switzerland's neutrality posed a particularly difficult problem. Switzerland resisted Allied efforts to reduce or halt its exports to Germany and to curb, if not end, the transshipment of German materials across its borders. Surrounded by Axis forces, Switzerland's financial relationship with Germany clearly exceeded that of other neutral countries. This contrast became clearest in the final year of the War when the German threat to Switzerland had clearly diminished.

Sweden, Portugal, Spain, and Turkey were also important commercial partners of Germany, and Allied efforts to throttle trade and financial exchanges between them and Berlin remained difficult. The United States was also determined to halt German trade and the movement of German assets to Central and South America. Argentina posed a particularly difficult problem in terms of preventing financial exchanges and war-oriented commerce. It was only with Allied military advances on both the western and eastern fronts over the last year of the War that the neutrals reconsidered their ties and trade with Germany.

During the War, the Allies also encountered growing evidence of the systematic seizure by the Nazis of gold and other assets from European Jews and other persecuted groups. The Holocaust became more apparent as it gathered massive and deadly momentum, and the Allies sought to respond to the extortion of ransom for individuals or small groups of Jews under Nazi arrest. These issues are only part of the larger question that faced the United States and its Allies of how to respond to the Holocaust and the plight of millions of victims of Nazi persecution.

Source: The United States State Department
This document is in the public domain.